Financing though banking credits for rural firms. Opportunities and constraints

Abstract

The non-government credit, in general and the consumer credit, in particular, expanded rapidly during the last years, confirming the general development trend of the economy. Still, the money supply and non government credit in Romania as percentage of the GDP are lower than in any other accession country and it is often argued that the supply of bank loans to SMEs is weaker than the potential demand for such services. In this study, the emphasis has been given to an assessment of the determinants of the demand for credit by firms in rural areas, as well as to the factors which constrain the supply of bank loans to these firms. Several reasons and conditions concur to give rise to the under-representation of rural credit in the overall loan portfolio of banks, such as: the banks’ presence in rural communities is weak for profit considerations; the bankers continue to believe that rural clients in general, and farmers in particular, have little financial discipline and normally do not have the capacity to repay their loans; the limited banking culture in rural communities and the lack of trust in using bank services; the tough conditions in getting a loan (the high real interest rates, the short grace period, the collateral requirement). Besides, the elaboration of a business plan and submitting a loan application file according to the banks’ demanding requirements are often beyond the possibilities of common rural entrepreneurs. All these constraints are valid for all rural businesses, but agriculture, with its assumed high risks, is by far the most disadvantaged.